[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4170 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 4170

   To amend the Public Health Service Act to provide for cooperative 
governing of health insurance policies by primary and secondary States 
  and to provide assistance to States to promote the establishment of 
qualified high risk pools, to provide financial incentives to encourage 
 health coverage for employees and individuals, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 11, 2002

 Mr. Fletcher introduced the following bill; which was referred to the 
 Committee on Energy and Commerce, and in addition to the Committee on 
   Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
   To amend the Public Health Service Act to provide for cooperative 
governing of health insurance policies by primary and secondary States 
  and to provide assistance to States to promote the establishment of 
qualified high risk pools, to provide financial incentives to encourage 
 health coverage for employees and individuals, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``State Cooperative 
Health Care Access Plan Act of 2002''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:


Sec. 1. Short title; table of contents.
                     TITLE I--COOPERATIVE GOVERNING

Sec. 101. Cooperative governing of health insurance policies.
   ``TITLE XXVIII--COOPERATIVE GOVERNING OF HEALTH INSURANCE POLICIES

        ``Sec. 2801. Primary State.
        ``Sec. 2802. Secondary States.
        ``Sec. 2803. Enforcement.
        ``Sec. 2804. Definitions.
Sec. 102. Development of process to assist cooperative governing of 
                            States.
Sec. 103. Findings; severability.
    TITLE II--ASSISTANCE TO STATES TO PROMOTE THE ESTABLISHMENT OF 
                       QUALIFIED HIGH RISK POOLS

Sec. 201. Funding States to promote qualified high risk pools.
TITLE III--CLARIFICATION OF DEFINITION OF GROUP HEALTH PLAN UNDER HIPAA

Sec. 301. Clarification of definition of group health plan under HIPAA.
                        TITLE IV--TAX PROVISIONS

Sec. 401. Refundable credit for health coverage.
Sec. 402. Deduction for qualified health coverage costs of employees 
                            and other individuals ineligible for health 
                            coverage refundable tax credit.
Sec. 403. Carryover of unused benefits from cafeteria plans, flexible 
                            spending arrangements, and health flexible 
                            spending accounts.
Sec. 404. Exclusion of premium payments for qualified health coverage 
                            under flexible spending arrangements.

                     TITLE I--COOPERATIVE GOVERNING

SEC. 101. COOPERATIVE GOVERNING OF HEALTH INSURANCE POLICIES.

    (a) In General.--The Public Health Service Act is amended by adding 
at the end the following new title:

   ``TITLE XXVIII--COOPERATIVE GOVERNING OF HEALTH INSURANCE POLICIES

``SEC. 2801. PRIMARY STATE.

    ``(a) In General.--A health insurance issuer offering a health 
insurance policy in the individual or group market shall abide by the 
product, rate, and form filing laws of the primary State.
    ``(b) Primary State Defined.--For purposes of this title, the term 
`primary State' means, with respect to a health insurance policy 
offered by a health insurance issuer, the State which includes the 
primary location for the issuer's health insurance business but only if 
the policy is filed and approved with the applicable primary State 
authority for that State.

``SEC. 2802. SECONDARY STATES.

    ``(a) In General.--A health insurance issuer offering a health 
insurance policy that is approved by the applicable primary State 
authority for the primary State--
            ``(1) may offer such policy type in a secondary State;
            ``(2) is bound by the laws of the primary State for such 
        policy; and
            ``(3) must comply with the applicable provisions of the 
        mechanism developed by the National Association of Insurance 
        Commissioners under section 102(a)(2) of the State Cooperative 
        Health Care Access Plan Act of 2002.
    ``(b) Application of Laws of Primary State to Secondary State.--For 
purposes of subsection (a), the product, rate, and form filing laws of 
the primary State shall apply to the health insurance policy offered by 
health insurance issuer in a secondary State. The product, rate, and 
form filing laws of the secondary State shall not apply to the health 
insurance issuer for such a policy that complies with the product, 
rate, and form filing laws of the primary State.
    ``(c) Definition.--For purposes of this title, the term `secondary 
State' means any State that is not the primary State.
    ``(d) Consumer Fraud.--For purposes of enforcement of an action 
consisting of consumer fraud in the case of a policy that complies with 
the laws of the primary State, the State insurance commission of a 
secondary State shall treat the policy as if the policy was primarily 
licensed in the secondary State.

``SEC. 2803. ENFORCEMENT.

    ``(a) Enforcement.--In the case of a health insurance policy that 
is approved by the applicable primary State authority for the primary 
State, a secondary State may enforce the product, rate, and form filing 
laws of the primary State.
    ``(b) Grants to States.--
            ``(1) In general.--The Secretary shall award grants to the 
        States for the purpose of carrying out the provisions of this 
        section.
            ``(2) Authorization of appropriations.--There are 
        authorized to be appropriated to the Secretary for grants under 
        paragraph (1), $50,000,000 for each of fiscal years 2004 and 
        2005.

``SEC. 2804. DEFINITIONS.

    ``(a) In General.--For purposes of this title, the terms `State', 
`health insurance coverage', `health insurance issuer', `individual 
market', and `group market' have the meanings given such terms in 
section 2791.
    ``(b) Applicable Primary State Authority.--The term `applicable 
primary State authority' means, with respect to a health insurance 
issuer in a State, the State insurance commissioner or official or 
officials designated by the State to enforce requirements of this title 
for the State involved with respect to such issuer.
    ``(c) Health Insurance Policy.--The term `health insurance policy' 
means a policy, certificate, or contract that constitutes health 
insurance coverage.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect 24 months after the date of the enactment of this Act, 
except that the authorization of appropriations provided in such 
amendment is effective on the date of the enactment of this Act.

SEC. 102. DEVELOPMENT OF PROCESS TO ASSIST COOPERATIVE GOVERNING OF 
              STATES.

    (a) NAIC Development of Cooperative Governing Process.--
            (1) In general.--The Secretary of Health and Human Services 
        shall provide the funds necessary to enable the National 
        Association of Insurance Commissioners to develop a mechanism 
        to assist States in meeting the requirements of title XXVIII of 
        the Public Health Service Act (as added by section 101(a)).
            (2) State enforcement and information exchange -
        assistance.--Such mechanism shall include--
                    (A) implementation of an enforcement process;
                    (B) information exchange of applicability of the 
                laws of a primary State to a policy offered in a 
                secondary State; and
                    (C) establishment of a process for purposes of 
                consumer fraud enforcement, pursuant to section 2802(e) 
                of the Public Health Service Act, for an individual who 
                purchases a health insurance policy in a State other 
                than the State of residence of such individual.
            (3) Interim report.--Not later than 6 months after the date 
        of the enactment of this Act, the National Association of 
        Insurance Commissioners shall provide an interim report to the 
        States and Congress on such mechanism.
            (4) Final report.--Not later than 18 months after the date 
        of the enactment of this Act, the National Association of 
        Insurance Commissioners shall provide a final report to the 
        States and Congress on such mechanism to assist the States in 
        meeting the requirements of title XXVIII of the Public Health 
        Service Act.
    (b) Authorization of Appropriations.--There are authorized to be 
appropriated $10,000,000 to carry out the provisions of this section 
for each of fiscal years 2003 and 2004.

SEC. 103. FINDINGS; SEVERABILITY.

    (a) Findings Relating to Exercise of Commerce Clause Authority.--
Congress finds the following in relation to the provisions of this 
title:
            (1) Health insurance products are increasingly provided 
        through the Internet and the application of multiple variations 
        in State law impact the ability to provide access to affordable 
        health coverage to individuals and employees seeking employment 
        in interstate commerce, thereby impeding such commerce.
            (2) Health insurance coverage is commercial in nature and 
        is in and affects interstate commerce.
            (3) Congress, however, intends to defer to States, to the 
        maximum extent practicable, in carrying out such requirements 
        with respect to insurers and health maintenance organizations 
        that are subject to State regulation.
    (b) Severability.--If any provision of this title or the 
application of such provision to any person or circumstance is held to 
be unconstitutional, the remainder of this title and the application of 
the provisions of such to any person or circumstance shall not be 
affected thereby.

    TITLE II--ASSISTANCE TO STATES TO PROMOTE THE ESTABLISHMENT OF 
                       QUALIFIED HIGH RISK POOLS

SEC. 201. FUNDING STATES TO PROMOTE QUALIFIED HIGH RISK POOLS.

    (a) In General.--Title XXVII of the Public Health Service Act is 
amended by inserting after section 2744 the following new section:

``SEC. 2745. PROMOTION OF QUALIFIED HIGH RISK POOLS.

    ``(a) Seed Grants to States.--The Secretary shall provide from the 
funds appropriated under subsection (d)(1) a grant of up to $1,000,000 
to each State that has not created a qualified high risk pool as of the 
date of the enactment of this section for the State's costs of creation 
and initial operation of such a pool.
    ``(b) Matching Funds for Operation of Pools.--
            ``(1) In general.--In the case of a State that has 
        established a qualified high risk pool that restricts premiums 
        charged under the pool to no more than 200 percent of the 
        premium for applicable standard risk rates, that has been in 
        operation for at least 1 year, and that offers a choice of two 
        or more coverage options through the pool, from the funds 
        appropriated under subsection (c)(2) and allotted to the State 
        under paragraph (2), the Secretary shall provide a grant for a 
        percentage of the losses incurred by the State risk pool in 
        connection with the operation of the pool as follows:
                    ``(A) 25 percent (multiplied by the poverty 
                adjustment factor) of the losses for risk pools with 
                premiums that exceed 150 percent, but are less than 200 
                percent, of the premium for applicable standard risk 
                rates, but not to exceed an aggregate amount under the 
                grant of 50 cents per capita based upon the State's 
                population.
                    ``(B) 50 percent (multiplied by the poverty 
                adjustment factor under paragraph (3)) of the losses 
                for risk pools with premiums which exceed 125 percent, 
                but are less than 150 percent, of the premium for 
                applicable standard risk rates, but not to exceed an 
                aggregate amount under the grant of 50 cents per capita 
                based upon the State's population.
                    ``(C) 60 percent (multiplied by the poverty 
                adjustment factor) of the losses for risk pools with 
                premiums which do not exceed 125 percent of the premium 
                for applicable standard risk rates, but not to exceed 
                an aggregate amount under the grant of $1 per capita 
                based upon the State's population.
            ``(2) Allotment.--The amounts appropriated under subsection 
        (d)(1)(B) for a fiscal year shall be made available to the 
        States in accordance with a formula established by the 
        Secretary that is based upon the number of uninsured 
        individuals in the States and only to States that provide for 
        matching funds.
            ``(3) Poverty adjustment factor.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the `poverty adjustment 
                factor' for a State for a fiscal year is equal to the 
                ratio of--
                            ``(i) the Federal medical assistance 
                        percentage for that State for that fiscal year 
                        (as determined under section 1905(b) of the 
                        Social Security Act), to
                            ``(ii) the weighted average of the Federal 
                        medical assistance percentages for the 50 
                        States and the District of Columbia for that 
                        fiscal year.
                    ``(B) Special rule for small states.--The poverty 
                adjustment factor shall not be less than 1.0 for a 
                State with a population of under 2,000,000.
            ``(4) Construction.--Nothing in this subsection shall be 
        construed as preventing a State from supplementing the funds 
        made available under this subsection for the support and 
        operation of qualified high risk pools.
    ``(c) Assistance for Low-Income Individuals.--
            ``(1) In general.--The Secretary shall establish a program 
        of grants to States to enable States to provide financial 
        assistance to low-income individuals who are receiving the 
        health coverage tax credit under section 35 of the Internal 
        Revenue Code of 1986, who obtain coverage through enrollment in 
        a qualified high risk pool, and who, because of the increased 
        premium of coverage available through such pool, would be 
        otherwise unable to afford such coverage.
            ``(2) Application.--No grant may be made to a State under 
        this subsection except upon application by the State to the 
        Secretary. Such application shall include a description of the 
        individuals who qualify for assistance and the amount of such 
        assistance.
            ``(3) Requirements.--A grant under this subsection may only 
        be provided to a State if the State provides the Secretary with 
        satisfactory assurances that--
                    ``(A) the State will provide for the expenditure of 
                State funds towards financial assistance described in 
                paragraph (1) an amount equal to at least 10 percent of 
                the amount of the grant; and
                    ``(B) the funds under the grant will only be used 
                to reduce the premiums otherwise applicable to low-
                income individuals and will not be diverted or 
                otherwise transferred to the general fund of the State.
    ``(d) Funding.--
            ``(1) Seed grants and operations support.--Out of any money 
        in the Treasury of the United States not otherwise 
        appropriated, there are appropriated--
                    ``(A) such sums as may be required for fiscal year 
                2003 to carry out subsection (a); and
                    ``(B) $100,000,000 for each of fiscal years 2003 
                through 2007 to carry out subsection (b).
            ``(2) Low-income assistance.--There are authorized to be 
        appropriated $64,000,000 for each of fiscal years 2003 and 2004 
        to carry out subsection (c).
            ``(3) Availability of appropriations.--Funds appropriated 
        under this subsection for a fiscal year shall remain available 
        for obligation through the end of the following fiscal year.
            ``(4) No entitlement.--Nothing in this section shall be 
        construed as providing a State with an entitlement to a grant 
        under this section.
    ``(e) Definitions.--For purposes of this section:
            ``(1) Qualified high risk pool.--The term `qualified high 
        risk pool' means such a pool as defined in section 2744(c)(2) 
        but only if the pool--
                    ``(A) is open continuously;
                    ``(B) does not have any cap on enrollment;
                    ``(C) offers a choice of two or more coverage 
                options;
                    ``(D) is the State alternative mechanism used by 
                State under section 2744 of the Public Health Service 
                Act; and
                    ``(E) has a mechanism for continual funding (in 
                addition to any funding provided under this section).
            ``(2) State.--The term `State' means any of the 50 States 
        and the District of Columbia.''.
    (b) Construction.--Nothing in this section shall be construed as 
affecting the ability of a State to use mechanisms, described in 
sections 2741(c) and 2744 of the Public Health Service Act, as an 
alternative to applying the guaranteed availability provisions of 
section 2741(a) of such Act.

TITLE III--CLARIFICATION OF DEFINITION OF GROUP HEALTH PLAN UNDER HIPAA

SEC. 301. CLARIFICATION OF DEFINITION OF GROUP HEALTH PLAN UNDER HIPAA.

    (a) Amendment to ERISA.--Section 733(a)(1) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1191b(a)(1)) is 
amended by adding at the end the following new sentence: ``Such term 
does not include an arrangement maintained by a small employer (as 
defined in section 712(c)(1)(B)) the sole effect of which is to provide 
reimbursement to employees for the purchase by such employees of health 
insurance coverage offered in the individual market (as defined in 
section 2791(e)(1) of the Public Health Service Act).''.
    (b) Amendment to PHSA.--Section 2791(a)(1) of the Public Health 
Service Act (42 U.S.C. 300gg-91(a)(1)) is amended by adding at the end 
the following new sentence: ``Such term does not include an arrangement 
maintained by a small employer the sole effect of which is to provide 
reimbursement to employees for the purchase by such employees of health 
insurance coverage offered in the individual market.''.
    (c) Amendment to IRC.--Section 9832(a) of the Internal Revenue Code 
of 1986 (relating to definitions) is amended by inserting before the 
period at the end the following: ``, except that such term does not 
include an arrangement maintained by a small employer (as defined in 
section 4980D(d)(2)(A)) the sole effect of which is to provide 
reimbursement to employees for the purchase by such employees of health 
insurance coverage offered in the individual market (as defined in 
section 2791(e)(1) of the Public Health Service Act)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after the date of the enactment of this 
Act.

                        TITLE IV--TAX PROVISIONS

SEC. 401. REFUNDABLE CREDIT FOR HEALTH COVERAGE.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 35 as section 36 and by inserting 
after section 34 the following new section:

``SEC. 35. HEALTH COVERAGE CREDIT.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to the amount paid by the taxpayer during 
the taxable year for qualified health coverage for the taxpayer and his 
spouse and dependents.
    ``(b) Monthly Limitations.--
            ``(1) In general.--The amount allowed as a credit under 
        subsection (a) to the taxpayer for the taxable year shall not 
        exceed the sum of the monthly limitations during such taxable 
        year.
            ``(2) Monthly limitation defined.--The monthly limitation 
        for any eligible month is the amount equal to \1/12\ of--
                    ``(A) $1,000 if, as of the first day of such month, 
                the taxpayer has self-only coverage under qualified 
                health coverage, and
                    ``(B) $2,000 if, as of the first day of such month, 
                the taxpayer has family coverage under qualified health 
                coverage.
            ``(3) Amount of employee contribution.--In the case of any 
        calendar month for which the taxpayer is eligible to 
        participate in any subsidized health plan maintained by any 
        employer of the taxpayer or of the spouse of the taxpayer, the 
        amount allowed as a credit under subsection (a) for such month 
        shall not exceed the amount paid by the taxpayer for coverage 
        under such plan for such month.
            ``(4) Certain other coverage.--Amounts paid for coverage of 
        an individual for any month shall not be taken into account 
        under subsection (a) if, as of the first day of such month, 
        such individual--
                    ``(A) is eligible for health care benefits under 
                title XVIII of the Social Security Act (relating to 
                medicare),
                    ``(B) is covered under a medical care program 
                described in title XIX or XXI of the Social Security 
                Act (relating to medicaid and State children's health 
                insurance program, respectively),
                    ``(C) is eligible for health care benefits under 
                chapter 55 of title 10, United States Code (relating to 
                Armed Forces medical and dental care),
                    ``(D) is covered under a medical care program 
                described in chapter 17 of title 38, United States Code 
                (relating to veterans' hospital, nursing home, 
                domiciliary, and medical care), or
                    ``(E) is covered under a medical care program 
                described in the Indian Health Care Improvement Act.
            ``(5) Prisoners.--Amounts paid for coverage of an 
        individual for any month shall not be taken into account under 
        subsection (a) if, as of the first day of such month, such 
        individual is incarcerated under Federal, State, or local 
        authority pursuant to a conviction for crime.
    ``(c) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The aggregate amount which would (but 
        for this subsection) be allowed as a credit under this section 
        shall be reduced (but not below zero) by the amount determined 
        under paragraph (2).
            ``(2) Amount of reduction.--
                    ``(A) In general.--The amount determined under this 
                paragraph shall be the amount which bears the same 
                ratio to such aggregate amount as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) the applicable dollar 
                                amount, bears to
                            ``(ii) $15,000 ($30,000 in the case of a 
                        joint return, surviving spouse, or head of 
                        household).
                    ``(B) Rounding.--Any amount determined under 
                subparagraph (A) which is not a multiple of $10 shall 
                be rounded to the next lowest $10.
            ``(3) Modified adjusted gross income.--For purposes of this 
        section, the term `modified adjusted gross income' means 
        adjusted gross income increased by any amount excluded from 
        gross income under section 911, 931, or 933.
            ``(4) Applicable dollar amount.--For purposes of paragraph 
        (2), the term `applicable dollar amount' means--
                    ``(A) $35,000 in the case of a taxpayer whose 
                qualified health coverage covers more than 1 individual 
                referred to in subsection (a) and who files a joint 
                return or a surviving spouse,
                    ``(B) $30,000 in the case of a taxpayer whose 
                qualified health coverage covers more than 1 individual 
                referred to in subsection (a) and who files a return as 
                head of household, and
                    ``(C) $20,000--
                            ``(i) in any case not described in 
                        subparagraph (A) or (B), and
                            ``(ii) in the case of a married individual 
                        filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703, and the terms `surviving spouse' 
        and `head of household' shall have the meanings given such 
        terms by section 2.
    ``(d) Qualified Health Coverage.--For purposes of this section, the 
term `qualified health coverage' means health insurance coverage (as 
defined in section 9832(b)(1)) and coverage under a high deductible 
plan (as defined in section 220(c)(2)), under a COBRA continuation 
provision (as defined in section 9832(d)(1)), under a group health plan 
(as defined in section 5000(b)(1)) providing medical care (as defined 
in section 9832(d)(3)), and under a qualified high risk pool (as 
defined in section 2744(c)(2) of the Public Health Service Act).
    ``(e) Coordination With Advance Payments of Credit.--
            ``(1) Recapture of excess advance payments.--If any payment 
        is made by the Secretary under section 7527 during any calendar 
        year to a person furnishing qualified health coverage for an 
        individual, then the tax imposed by this chapter for the 
        individual's last taxable year beginning in such calendar year 
        shall be increased by the aggregate amount of such payments.
            ``(2) Reconciliation of payments advanced and credit 
        allowed.--Any increase in tax under paragraph (1) shall not be 
        treated as tax imposed by this chapter for purposes of 
        determining the amount of any credit (other than the credit 
        allowed by subsection (a)(1)) allowable under this part.
    ``(f) Archer MSA Contributions.--
            ``(1) In general.--If a deduction would (but for paragraph 
        (2)) be allowed under section 220 to the taxpayer for a payment 
        for the taxable year to the Archer MSA of an individual, 
        subsection (a) shall be applied by treating such payment as a 
        payment for qualified health coverage for such individual.
            ``(2) Denial of double benefit.--No deduction shall be 
        allowed under section 220 for that portion of the payments 
        otherwise allowable as a deduction under section 220 for the 
        taxable year which is equal to the amount of taken into account 
        under subsection (a) for such taxable year by reason of this 
        subsection.
    ``(g) Special Rules.--
            ``(1) Exclusion if participant in cafeteria plan or 
        flexible spending arrangement.--Subsection (a) shall not apply 
        to a taxpayer for a taxable year if any amount is not 
        includible in the gross income of the taxpayer for such taxable 
        year by reason of section 106 with respect to--
                    ``(A) a benefit consisting of qualified health 
                coverage under a cafeteria plan (as defined in section 
                125(d)), or
                    ``(B) a benefit consisting of qualified health 
                coverage under a flexible spending or similar 
                arrangement.
            ``(2) Coordination with medical expense deduction.--The 
        amount which would (but for this paragraph) be taken into 
        account by the taxpayer under section 213 for the taxable year 
        shall be reduced by the amount taken into account under this 
        section for such year.
            ``(3) Coordination with deduction for qualified health 
        coverage costs.--No credit shall be allowed under this section 
        for the taxable year if any amount paid for qualified health 
        coverage is taken into account in determining the deduction 
        allowed for such year under section 223.
            ``(4) Denial of credit to dependents.--No credit shall be 
        allowed under this section to any individual with respect to 
        whom a deduction under section 151 is allowable to another 
        taxpayer for a taxable year beginning in the calendar year in 
        which such individual's taxable year begins.
            ``(5) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, the 
        credit shall be allowed under subsection (a) only if the 
        taxpayer and his spouse file a joint return for the taxable 
        year.
            ``(6) Marital status.--An individual legally separated from 
        his spouse under a decree of divorce or of separate maintenance 
        shall not be considered as married.
            ``(7) Inflation adjustment.--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2003, each dollar amount in subsection 
                (d)(4) shall be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2002' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $100, such amount 
                shall be rounded to the next lowest multiple of $100.
    ``(h) Restrictions on taxpayers who improperly claimed credit in 
prior year.--For purposes of this section, rules similar to the rules 
of section 32(k) shall apply.''.
    (b) Information Reporting.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of such Code (relating to information concerning 
        transactions with other persons) is amended by inserting after 
        section 6050S the following new section:

``SEC. 6050T. RETURNS RELATING TO HEALTH COVERAGE CREDIT.

    ``(a) Requirement of Reporting.--Every person--
            ``(1) who, in connection with a trade or business conducted 
        by such person, receives payments during any calendar year from 
        any individual for qualified health coverage (as defined in 
        section 35(d)) of such individual or any other individual, and
            ``(2) who claims a reimbursement for an advance credit 
        amount,
shall, at such time as the Secretary may prescribe, make the return 
described in subsection (b) with respect to each individual from whom 
such payments were received or for whom such a reimbursement is 
claimed.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe, and
            ``(2) contains--
                    ``(A) the name, address, and TIN of each individual 
                referred to in subsection (a),
                    ``(B) the aggregate of the advance credit amounts 
                provided to such individual and for which reimbursement 
                is claimed,
                    ``(C) the number of months for which such advance 
                credit amounts are so provided, and
                    ``(D) such other information as the Secretary may 
                prescribe.
    ``(c) Statements To Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the phone number of the information contact for 
        such person, and
            ``(2) the information required to be shown on the return 
        with respect to such individual.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) is required to be made.
    ``(d) Advance Credit Amount.--For purposes of this section, the 
term `advance credit amount' means an amount for which the person can 
claim a reimbursement pursuant to a program established by the 
Secretary under section 7527.''
            (2) Assessable penalties.--
                    (A) Subparagraph (B) of section 6724(d)(1) of such 
                Code (relating to definitions) is amended by 
                redesignating clauses (xi) through (xvii) as clauses 
                (xii) through (xviii), respectively, and by inserting 
                after clause (x) the following new clause:
                            ``(xi) section 6050T (relating to returns 
                        relating to health coverage credit),''.
                    (B) Paragraph (2) of section 6724(d) of such Code 
                is amended by striking ``or'' at the end of 
                subparagraph (Z), by striking the period at the end of 
                subparagraph (AA) and inserting ``, or'', and by adding 
                after subparagraph (AA) the following new subparagraph:
                    ``(BB) section 6050T (relating to returns relating 
                to health coverage credit).''
    (c) Advance Payment of Health Coverage Credit.--Chapter 77 of such 
Code (relating to miscellaneous provisions) is amended by adding at the 
end the following new section:

``SEC. 7527. ADVANCE PAYMENT OF HEALTH COVERAGE CREDIT.

    ``(a) General Rule.--The Secretary shall establish a program for 
making payments on behalf of eligible individuals to persons furnishing 
qualified health coverage for such individuals.
    ``(b) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual for whom a qualified health coverage credit 
        eligibility certificate is in effect.
            ``(2) Certificate in effect.--A qualified health coverage 
        credit eligibility certificate shall take effect on the first 
        day of a coverage month and shall remain in effect with respect 
        to the individual until the earlier of revocation by the 
        individual, another such certificate takes effect under this 
        section with respect to the individual, or cancellation of the 
        qualified health coverage by the person furnishing such 
        coverage.
            ``(3) Coverage month.--For purposes of paragraph (2), the 
        term `coverage month' means any month in which the eligible 
        individual has coverage under qualified health coverage (as 
        defined in section 35(d)) unless on the first day of such month 
        such individual is eligible for benefits or covered under a 
        program, as the case may be, described in section 35(b)(4) or 
        is described in section 35(b)(5).
    ``(c) Qualified Health Coverage Credit Eligibility Certificate.--
            ``(1) In general.--For purposes of this section, a 
        qualified health coverage credit eligibility certificate is a 
        statement certified by the person furnishing qualified health 
        coverage for an eligible individual which--
                    ``(A) certifies that the individual is covered by 
                qualified health coverage as of the first day of any 
                month, and
                    ``(B) provides such other information as the 
                Secretary may require for purposes of this section.
            ``(2) Reliance on information provided by individuals.--In 
        preparing the statement required by paragraph (1), the such 
        person may rely on any representation made by the eligible 
        individual with respect to such statement unless such person 
        has actual notice or knowledge (within the meaning of section 
        6323(i)(1)) that any such representation is false.
            ``(3) Duty to provide updated information.--If any 
        information provided with respect to the statement required by 
        paragraph (1) is no longer accurate, the person providing such 
        statement shall inform the person furnishing qualified health 
        coverage within 30 days of any change of information.
    ``(d) Qualified Health Coverage.--For purposes of this section, the 
term `qualified health coverage' has the meaning given such term by 
section 35(d).''.
    (d) Technical Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``or from section 35 of 
        such Code'' before the period at the end.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by striking the item relating to section 35 and 
        inserting the following new items:

                              ``Sec. 35. Health coverage credit.
                              ``Sec. 36. Overpayments of tax.''.
            (3) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 of such Code is amended by inserting 
        after the item relating to section 6050S the following new 
        item:

                              ``Sec. 6050T. Returns relating to health 
                                        coverage credit.''.
            (4) The table of sections for chapter 77 of such Code is 
        amended by adding at the end the following new item:

                              ``Sec. 7527. Advance payment of health 
                                        coverage credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 402. DEDUCTION FOR QUALIFIED HEALTH COVERAGE COSTS OF EMPLOYEES 
              AND OTHER INDIVIDUALS INELIGIBLE FOR HEALTH COVERAGE 
              REFUNDABLE TAX CREDIT.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions) is amended by redesignating section 223 as section 224 and 
by inserting after section 222 the following new section:

``SEC. 223. COSTS OF QUALIFIED HEALTH COVERAGE.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the amount paid during the 
taxable year for qualified health coverage for the taxpayer and his 
spouse and dependents.
    ``(b) Limitations.--
            ``(1) Amount of employee contribution to subsidized plan.--
        In the case of any year for which the taxpayer is eligible to 
        participate in any subsidized health plan maintained by any 
        employer of the taxpayer or of the spouse of the taxpayer, the 
        amount allowed as a deduction under subsection (a) for such 
        year shall not exceed the amount paid by the taxpayer for 
        coverage under such plan for such year. For purposes of the 
        preceding sentence, all health plans of persons treated as a 
        single employer under subsection (b), (c), or (m) of section 
        414 shall be treated as 1 health plan.
            ``(2) Employer contributions to cafeteria plans, flexible 
        spending arrangements, and Archer MSAs.--Amounts contributed to 
        a cafeteria plan, a flexible spending or similar arrangement, 
        or an Archer MSA which are excluded from gross income under 
        section 106 shall be treated as paid by the employer and not by 
        the individual.
            ``(3) Denial of double benefit.--No deduction shall be 
        allowed under subsection (a) for a taxable year to any taxpayer 
        allowed a credit under section 35 for such taxable year.
            ``(4) Certain other coverage; prisoners.--Amounts paid for 
        coverage of an individual for any month shall not be taken into 
        account under subsection (a) if, as of the first day of such 
        month, such individual is eligible for benefits or covered 
        under a program, as the case may be, described in section 
        35(b)(4) or is described in section 35(b)(5).
            ``(5) Ancillary coverage premiums.--Amounts paid for 
        coverage of an individual for excepted benefits (as defined in 
        section 9832(c)) shall not be taken into account under 
        subsection (a).
    ``(c) Qualified Health Coverage.--For purposes of this section, the 
term `qualified health coverage' has the meaning given such term by 
section 35(d).
    ``(d) Coordination With Other Deductions.--Amounts taken into 
account by the taxpayer in computing the deduction under section 162(l) 
and in computing the deduction under section 213 shall not be taken 
into account under subsection (a).
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to amounts paid for qualified 
health coverage for any taxable year.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (18) the following new item:
            ``(19) Qualified health coverage costs.--The deduction 
        allowed by section 223.''.
    (c) Conforming Amendments.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the last 
item and inserting the following new items:

                              ``Sec. 223. Costs of qualified health 
                                        coverage.
                              ``Sec. 224. Cross reference.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 403. CARRYOVER OF UNUSED BENEFITS FROM CAFETERIA PLANS, FLEXIBLE 
              SPENDING ARRANGEMENTS, AND HEALTH FLEXIBLE SPENDING 
              ACCOUNTS.

    (a) In General.--Section 125 of the Internal Revenue Code of 1986 
(relating to cafeteria plans) is amended by redesignating subsections 
(h) and (i) as subsections (i) and (j) and by inserting after 
subsection (g) the following new subsection:
    ``(h) Allowance of Carryovers of Unused Benefits to Later Taxable 
Years.--
            ``(1) In general.--For purposes of this title--
                    ``(A) notwithstanding subsection (d)(2), a plan or 
                other arrangement shall not fail to be treated as a 
                cafeteria plan or flexible spending or similar 
                arrangement, and
                    ``(B) no amount shall be required to be included in 
                gross income by reason of this section or any other 
                provision of this chapter,
        solely because under such plan or other arrangement any 
        nontaxable benefit which is unused as of the close of a taxable 
        year may be carried forward to 1 or more succeeding taxable 
        years.
            ``(2) Limitation.--Paragraph (1) shall not apply to amounts 
        carried forward from a plan to the extent such amounts exceed 
        $500.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 404. EXCLUSION OF PREMIUM PAYMENTS FOR QUALIFIED HEALTH COVERAGE 
              UNDER FLEXIBLE SPENDING ARRANGEMENTS.

    (a) In General.--Section 106 of the Internal Revenue Code of 1986 
(relating to contributions by employer to accident and health plans) is 
amended by adding at the end the following new subsection:
    ``(d) Qualified Health Coverage Under Flexible Spending 
Arrangement.--For purposes of subsection (a), amounts paid under a 
flexible spending or similar arrangement (as defined in subsection 
(c)(2)) for qualified health coverage (as defined in section 35(d)) 
shall be treated as employer-provided coverage under an accident or 
health plan.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.
                                 <all>